IMF: Sri Lanka likely to miss fiscal deficit target
COLOMBO: Sri Lanka’s fiscal deficit is likely to range between 5.5 percent and 6 percent in 2015, the IMF said, pushed beyond an official target of 4.4 percent by falling government revenues.
Todd Schneider, the chief of the IMF mission to Colombo, projected economic growth at 5.0 percent to 5.5 percent for 2015, lower than the government estimate of 7 percent.
“Revenue is the main concern, it is one of the lowest in the world in terms of gross domestic product,” he said.
The ratio of revenue to GDP stands at around 11 percent.
The global lender warned in May that President Maithripala Sirisena’s administration would struggle to meet the fiscal deficit target this year because of government hikes in wages and spending.
Sirisena took power in January, vowing to carry out political and economic reforms to put the island economy on the path to strong growth.
After consolidating his power in a parliamentary election last month, he hopes to root out political opposition to the reforms.
“The mission agreed with the authorities on the need to take immediate and credible steps to re-establish fiscal consolidation and reduce public debt,” Schneider said.
The IMF was on its fourth assessment mission in Colombo since the full disbursement of a $2.6-billion loan in mid-2012.
“Putting state firms on a commercial footing, allowing them to make market-based financial decisions and subjecting them to greater financial discipline will also help reduce risks to the budget and the financial system,” Schneider said.
In another development, a government document showed that Sri Lanka would be exposed to the risk of claims from the firm managing a suspended Chinese-backed real estate project if the government fails to obtain approvals needed by the project within 60 days.
The $1.4 billion Colombo port city project was suspended by President Sirisena’s new government in March because it was found not to have the proper permits and approvals.
In a Cabinet paper requesting a six-month extension for the project, Ports Minister Arjuna Ranatunga said the attorney general had brought to his attention that the obligation to obtain the required approvals “for the reclamation works rests with the government.”
Ranatunga’s Cabinet paper comes after CHEC Port City Colombo (Pvt) Ltd, the local company handling the project, proposed two alternative clauses to its original agreement signed last year that would allow the project to be extended by six months.
In the paper, Ranatunga said “if such required approvals cannot be obtained within a period of 60 days as required … by the project company, the government would be exposed the risk of receiving claims from the project company for losses suffered by the project company as a result of not being able to commence the reclamation work.”